NATIONAL  ASSOCIATION  OF  CREDIT  MEN 

Twenty-sixth  Annual  Convention 
At  San  Francisco,  June  17, 1921 

Address  by 

Wm.  Sproule,  President,  Southern  Pacific  Company 


“Transportation  as  a Factor  in  Business”  is  the  subject  you 
have  been  good  enough  to  suggest  as  the  topic  of  this  address.  I 
prefer  to  say  that  transportation  is  the  foundation  of  business,  for 
without  it  there  could  be  only  local  barter. 

No  business  can  be  conducted  without  reference  to  transpor- 
tation. Even  the  home  industry,  using  home-made  machinery  and 
working  up  home  products,  must  figure  against  the  same  manu- 
factured product  or  one  competing  with  it  entering  that  same  home 
market  by  means  of  transportation  from  other  and  perhaps  very 
distant  and  diverse  points  of  manufacture. 

So  everyone  in  business  has  before  him  in  some  way  the 
transportation  question  and  is  to  some  extent  a critic  of  the 
agencies  of  transportation.  Hence,  the  mind  of  the  Nation  has 
for  some  time  been  directed  to  the  importance  of  the  business  of 
transportation  as  a factor  in  every  man’s  business,  until  now  there 
stand  in  the  public  spotlight  the  Railroads  of  the  United  States  on 
the  one  hand,  and  the  United  States  Shipping  Board  on  the  other 
hand,  as  the  great  public  agencies  for  transportation  that  affect 
the  welfare  of  the  public  to  the  greatest  extent. 

In  so  far  as  I may  use  figures  in  discussing  the  subject,  will 
state  them  in  round  numbers  for  your  convenience. 

In  these  times  the  transportation  agencies  may  be  said  to 
be  on  the  way  toward  convalescing  after  a burning  and  exhausting 
war  fever,  when  the  calm  deliberation  that  belongs  to  time  of 
peace  had  to  give  way  overnight  to  the  emergencies  of  a war  for 
which  we  had  made  no  preparations,  and  into  which  the  railroads 
were  flung  to  win  the  war. 

These  transportation  agencies  now  find  themselves  very  much 
in  the  same  position  as  the  birds  and  beasts  which,  in  a state 


^ 50086 


of  nature,  oftentimes  attack  the  individual  among  them  who  is 
sick,  not  as  a means  of  curing  the  sick  one,  but  of  killing  it.  Thus 
the  railroads  are  passing  through  a period  of  attack  with  little 
power  of  resistance,  and  these  attacks  are  because  of  an  ailment 
which  those  very  agencies  of  transportation  did  not  bring  upon 
themselves,  and  could  in  nowise  avoid.  They  are  the  victims  of  a 
condition  they  did  not  create. 

While  the  United  States  Shipping  Board  has  been  losing  a 
million  dollars  a day  (according  to  a late  statement  by  Admiral 
Benson)  because  it  has  a large  fleet  of  vessels  built  by  the  Govern- 
ment at  very  high  prices,  while  ocean  rates  are  drifting  low  and 
the  cost  of  operating  the  ships  is  at  or  near  the  highest  cost  on 
record,  the  railroads  are  unable  to  maintain  their  earning  power  be- 
cause of  their  operating  costs  having  been  set  up  as  a war  measure 
to  extremes  previously  unheard  of  and  from  which  there  is  as  yet 
prospect  of  but  slight  reduction. 

The  United  States  Shipping  Board  can  sell  the  ships  and  so 
get  rid  of  their  future  losses.  The  railroads  cannot  get  out,  and 
the  Government  itself  could  not  get  rid  of  the  losses  even  if  it 
owned  the  railroads ; which  brings  us  to  the  point  that  it  is  in- 
evitable that  the  railroad  situation  must  be  cared  for  in  order  that 
the  railroads  may  pass  from  their  period  of  sickness  into  whole- 
some health  and  strength. 

Transportation,  and  particularly  railroad  transportation,  is 
such  a large  factor  in  business  that  it  is  important  to  everyone 
that  the  railroads  should  be  on  a sound  and  healthy  working  basis 
in  order  that  business  may  have  the  benefit  of  prompt  carriage, 
with  despatch  and  safety. 

What  is  the  malady  and  its  progress  and  what  remains  to  be 
done  to  restore  those  transportation  agencies  to  satisfactory  vigor  ? 

The  malady  began  on  January  1,  1917,  when  the  Adamson 
Law  took  effect  on  American  railroads,  placing  their  costs  for 
wages  on  an  arbitrary  and  artificial  basis  of  eight  hours  a day 
for  calculating  the  pay  of  enginemen  and  trainmen.  By  this  one 
step  the  labor  costs  for  operation  of  the  railroads  were  increased 
in  1917  by  $271,000,000,  and  this  includes  only  those  railroads 
that  had  a gross  earning  of  a million  dollars  or  more  in  the 
year,  usually  known  as  Class  1 roads. 

The  next  step  was  a year  later  when  on  January  1,  1918,  the 
Government  took  over  the  railroads  as  a war  measure,  and  in 


2 


that  year  1918,  the  labor  costs  for  railroad  operations  were 
increased  by  $874,000,000. 

The  next  step  was  in  1919  when  increased  wages  again 
increased  the  labor  costs  by  $229,000,000  for  that  year. 

The  next  step  was  in  1920,  a short  time  before  the  rail- 
roads were  turned  back  to  their  owners,  when  the  wages  were 
again  increased,  and  this  time  by  the  sum  of  $855,000,000. 

Thus  the  increases  alone  in  labor  costs  within  the  four 
years  ended  January  31st,  1920,  reach  the  prodigious  sum  of 
$2,230,000,000  above  1916.  This  increase  is  almost  the  same 
amount  the  railroads  paid  for  all  of  their  operating  expenses  in 
1916. 

Comparing  again  1916  with  1920,  the  cost  of  wages,  fuel  and 
other  expenses  rose  so  that  in  1920  the  total  increase  in  operating 
expenses  was  $3,411,000,000,  while  the  revenues  taken  into  the 
box  office  in  1920  increased  but  $2,574,000,000,  leaving  the  rail- 
roads for  the  year  nearly  $837,000,000  to  the  bad.  To  state  it 
again,  the  total  sales  of  transportation  in  1920  increased  over 
1916  but  $2,574,000,000  to  pay  an  increased  bill  for  the  year  of 
$3,411,000,000.  So  the  railroads  were  $837,000,000  worse  off 
in  operating  expenses  alone  at  the  end  than  in  the  beginning. 

But  their  taxes  ran  on,  and  in  taxes  they  had  to  pay 
$141,000,000  in  1920  in  excess  of  1916.  So  the  roads  were  in 
fact  $978,000,000  worse  off  at  the  end  than  in  the  beginning,  and 
$978,000,000  is  not  very  far  from  one  billion  dollars. 

What  was  the  result  of  all  this?  The  railroads  earned  in 
1920  not  quite  72  per  cent  more  than  in  1916,  but  their  operating 
expenses  were  nearly  142  per  cent  more,  with  the  result  that  the 
net  operating  income  in  1920  which  could  be  applied  to  interest 
or  any  other  corporate  purposes  of  the  railroads,  was  only 
$62,000,000,  a decline  of  94  per  cent. 

The  pitiful  feature  of  this  period  is  that  these  railroads  re- 
ceived in  labor  less  than  8 per  cent  more  hours  of  service  in  1920 
than  in  1916,  although  they  paid  for  the  service  in  wages  152  per 
cent  more  in  1920,  and  the  total  expense  of  rendering  the  service 
was  142  per  cent  more. 

At  the  same  time,  the  total  transportation  service,  as 
expressed  in  train  miles  (that  is,  trains  moved  one  mile),  was 
actually  less  at  the  end  of  the  period  than  before  it,  namely,  was 
eighteen  and  one-half  million  train  miles  less,  or  expressed  in  per- 
centages, one  and  one-half  per  cent  less  train  miles  were  run  in 


3 


1920  than  in  1916,  and  train  miles  express  in  a general  way  for  this 
purpose  the  service  rendered  to  the  public. 

With  this  reduced  train  service,  however,  the  railroads  car- 
ried a greater  tonnage  of  freight  and  a greater  number  of  passen- 
gers in  1920  than  in  any  previous  year,  and  chiefly  because  the 
actual  operation  of  the  roads  was  turned  back  to  the  railroad 
companies  on  March  1,  1920,  although  the  wage  costs  were  and 
are  withheld  from  the  control  of  the  companies,  being  vested  in 
the  United  States  Railroad  Labor  Board  by  the  Transportation 
Act  of  1920.  And  so  the  wage  costs  remained  up  because  the 
wage  scales  were  beyond  the  control  of  management,  but  operating 
efficiency,  which  was  within  the  control  of  the  management,  im- 
proved. 

I have  said  that  in  1920  the  railroads  carried  more  freight 
and  more  passengers  than  in  1916  or  in  any  other  year  in  the 
history  of  our  country.  This  is  a fact  not  to  be  forgotten — and 
why  ? 

You  will  remember  that  in  1917  when  we  went  into  the 
war  the  railroads  in  the  Eastern  states  gradually  got  into  a con- 
dition of  blockade.  The  blockade  gradually  backed  up  to  include 
considerable  territory  west  of  Chicago  and  the  Mississippi  River. 
From  this  it  was  argued  that  the  railroads  had  broken  down.  This 
was  not  true.  The  break-down  was  not  upon  the  part  of  the  rail- 
roads. What  occurred  was  that  the  warehouses,  factories,  docks 
and  ships  in  Eastern  states  were  unable  to  care  for  the  business 
consigned  to  them.  When  the  sidings  of  the  factories  and  ware- 
houses, and  when  the  shipping  docks  became  filled  with  freight, 
and  ships  could  not  take  it  fast  enough  they  found  themselves  un- 
able to  handle  any  more  freight,  and  so  cars  by  the  thousand — and 
soon  by  the  tens  of  thousands — could  not  be  unloaded  because 
the  consignees  could  not  take  the  goods  and  there  was  no  place 
to  unload  the  cars. 

This  was  in  1917.  That  blockade  had  its  origin  in  a system 
of  priorities  by  which  department  heads  in  charge  of  Government 
work  gave  orders  that  their  particular  business  was  to  be  given 
preference  in  transportation  upon  the  basis  of  priority  orders. 
These  orders  could  have  only  one  practical  effect,  which  was  to 
block  the  channels  of  transportation  until  the  whole  business  got 
into  a tangle  of  confusion  and  congestion.  Hence,  the  blockade, 
which  was  not  by  any  act  of  the  railroads.  Now  comes  the  point, 
namely : 


4 


Nobody  has  heard  of  any  blockade  in  1920,  and  yet  in  all 
traffic  essentials  the  same  and  with  the  same  railroad  mileage,  the 
business  carried  by  the  railroads  in  1920,  figured  in  tons  carried 
one  mile,  was  449  billions  as  against  430  billions  in  1917,  or  19 
billion  tons  more  in  1920  than  in  1917. 

By  similar  measurement,  passengers  carried  one  mile,  were 
46  billions  in  1920  as  compared  with  39  billions  in  1917. 

The  railroads  could  have  carried  the  1917  tonnage  in  an 
orderly  manner,  if  they  had  been  permitted  to  do  so,  as  they  have 
in  fact  carried  it  in  1920.  It  was  not  a break-down  of  the  roads. 
It  was  a congestion  in  commercial  facilities  and  a natural  break- 
down of  an  ill-advised  scheme  of  priorities. 

The  result  was  the  Government  deemed  it  well  to  take  the 
roads  over  and  operate  them  commencing  January  1,  1918,  as  a 
war  measure,  and  as  a war  measure  gave  all  these  increases  in 
rates  of  pay  and  changes  in  working  conditions  which  have 
brought  the  railroads  to  their  present  plight. 

All  this  was  done  without  taking  steps  to  increase  the  rail- 
road rates  to  meet  the  increased  costs  of  operation,  because  the 
Government  was  standing  the  difference,  until  finally  the  drain 
upon  Government  itself  became  so  great  that  the  rates  had  to  be 
raised.  Unfortunately,  the  only  increases  which  gave  any  promise 
of  adequacy  have  been  baffled  by  the  fact  that  the  business  of  the 
country  was  rapidly  on  the  decline  about  the  same  time  the  in- 
creased rates  took  effect. 

Just  as  in  1917  it  was  lightly  alleged  that  the  railroads  had 
broken  down,  so  now  it  is  readily  alleged  that  the  increase  in 
railroad  rates  is  responsible  for  the  stagnation  of  business.  Be- 
cause transportation  is  so  important  a factor  in  business  it  would 
be  a serious  charge,  if  it  were  true,  that  the  railroad  rates  had 
produced  the  present  stagnation  in  business.  But  it  is  not  true. 

On  the  contrary,  the  railroad  rates  were  not  raised  in  time 
to  enable  the  railroads  to  move  the  commerce  of  the  country  in 
its  active  period  when  the  business  of  the  country  at  large  could 
easily  absorb  the  increase.  The  fact  is  that  the  rates  were  raised 
and  business  declined  at  about  the  same  time,  but  one  had  nothing 
to  do  with  the  other  as  a related  matter. 

In  proof  of  the  suggestion,  let  me  call  your  attention  to  the 
water  rates.  The  rates  by  water  have  been  on  the  decline.  Yet 
private  owners  are  laying  up  their  ships.  The  United  States 


5 


Shipping  Board  ships  are  laid  up  by  the  score  because  business 
is  stagnant.  The  cause  is  found  in  the  sheer  inability  of  business 
men  to  continue  their  business  on  a war  basis  or  to  resume  busi- 
ness as  yet  on  a peace  basis.  That  is  the  reason  business  has 
halted. 

Yet  the  call  of  the  day  is  that  railroads  reduce  their  rates 
because  business  is  bad.  This  call  for  reduction  comes  from  all 
sources  and  on  all  important  commodities  and  from  all  sections 
of  the  country.  I venture  the  opinion  that  if  all  the  railroads  of 
this  country  were,  by  some  edict,  to  reduce  their  rates  one-half 
on  every  kind  of  traffic  everywhere,  there  would  be  no  appreciable 
increase  in  the  volume  of  business  moved,  but  the  railroads  would 
be  prostrate  in  one  common  disaster  that  would  shake  the  Nation 
and  call  all  credits  into  question. 

I have  said  that  the  railroads  of  today  are  the  victims  of  a 
condition  they  did  not  create.  The  ailment  from  which  the  rail- 
roads are  suffering  is  not  of  their  own  making,  but  out  of  the 
situation  in  which  they  find  themselves  the  railroads  can  find  the 
way,  if  only  they  have  the  support  of  the  public,  and  that  support 
needs  to  be  constructive  and  co-operative. 

One  trouble  in  this  country  is  that  we  never  co-ordinate  our 
efforts.  This  is  true  in  every  field  of  our  activities  as  a nation. 
This  is  particularly  true  of  the  transportation  business,  and  from 
this  the  railroads  are  now  suffering. 

With  respect  to  the  railroads  then,  the  Transportation  Act 
of  1920  now  in  effect  is  the  first  serious  effort  of  the  Federal 
Government  to  co-ordinate  its  activities  in  a constructive  way  with 
reference  to  the  railroads.  It  provides  co-ordination  between  the 
Interstate  Commerce  Commission  and  the  United  States  Labor 
Board;  provides  means  for  co-ordination  as  to  the  activities  of 
the  Parcels  Post  and  of  the  Express  Traffic,  to  the  end  that  the 
public  may  be  well  served  by  each;  it  endeavors  to  co-ordinate 
the  revenues  of  the  carriers  between  the  so-called  weak  roads  and 
the  so-called  strong  roads  upon  a basis  which  remains  academic 
because  instead  of  earning  5^  per  cent  the  roads  are  earning  less 
than  half. 

Yet  there  is  no  co-ordination  as  between  the  railroads  whose 
rates  are  controlled  by  the  Government,  and  the  United  States 
Shipping  Board,  whose  rates  are  also  within  control  through  an- 
other, but  unrelated,  agency  of  the  Government. 


6 


Within  the  States  rates  are  controlled  by  each  of  those  states 
and,  of  course,  so  are  the  taxes  the  railroads  have  to  pay,  but 
the  State  Highways  built  by  the  state,  and  largely  out  of  the  taxes 
paid  by  the  railroads,  remain  for  the  most  part  unregulated  as  to 
the  users  of  those  state  highways. 

Thus,  the  railroad,  dedicated  to  public  use,  is  regulated  and 
taxed  while  the  state  highway,  also  dedicated  to  public  use  by  the 
state  itself,  is  used  free  or  for  a nominal  fee  by  carriers  of  freight 
and  passenger  and  express  traffic  competing  with  the  railroads 
who  have  themselves  been  taxed  to  build  those  very  highways. 

The  railroads  do  not  complain  of  the  competition  over  these 
highways,  but  they  have  a right  to  complain  of  the  unequal  and 
unfair  competition  from  users  of  these  highways  who  contribute 
largely  to  their  depreciation  and  to  increased  cost  of  maintenance 
of  the  highways  competing  with  the  railroads  without  paying 
anything  but  a nominal  fee  for  that  use.  We  can  all  take  for 
granted  the  use  of  these  highways  under  proper  regulation.  There 
can  be  no  complaint  as  to  that.  The  complaint  runs  against  unfair 
competition,  in  that  the  rail  carriers  who  contribute  so  much  out  of 
their  revenues  to  pay  for  these  highways  should  not  be  required 
to  face  a competition  which  as  to  rates  and  taxes  remains  un- 
regulated, with  the  further  prospect  that  the  rail  carriers  must 
again  be  taxed  for  the  reconstruction  and  greater  upkeep  of  these 
same  highways  because  of  this  greater  use. 

When  the  railroads  ask  for  rates  out  of  which  to  pay  these 
increased  expenses  they  are  assailed  as  trying  something  that  is 
against  the  public  interest.  For  that  reason  alone  it  is  to  the  public 
interest  that  the  unfairness  of  this  competition  should  be  recog- 
nized and  be  given  the  same  general  supervision  and  regulation 
of  charges  as  the  railroads.  There  can  be  no  unfairness  in  that. 

In  like  manner  as  to  the  Panama  Canal.  Recently  Mr. 
Kruttschnitt,  Chairman  of  the  Executive  Committee  and  Board  of 
Directors  of  the  Southern  Pacific  Company,  gave  testimony  before 
a Senate  Committee  in  Washington,*  which,  if  it  were  possible, 
should  be  read  by  every  business  man  in  this  country,  because  it 
is  filled  with  facts,  is  comprehensive  in  statement  and  is  a masterly 
review  of  the  present  railroad  situation.  In  it  he  urged,  for  ex- 
ample, that  waterways  and  highways  built  and  maintained  at 
public  expense  be  made  to  carry  themselves  by  imposing  a fair 
charge  on  those  who  use  them  for  hire  so  that  this  charge,  when 

•Committee  on  Interstate  Commerce,  U.  S.  Senate.  May  11  to  16,  1921. 


7 


added  to  the  license  fees  collected  from  those  who  use  the  high- 
ways merely  for  pleasure  purposes,  will  furnish  in  a reasonable 
way  a sum  which  will  pay  interest  on  the  investment  and  pay  the 
cost  of  upkeep.  His  point  was  that  the  traffic  over  the  highway 
created  and  maintained  by  the  public,  when  carried  for  profit 
should  pay  its  fair  share  of  the  interest  on  cost  and  of  the  upkeep 
of  the  highway  facility  used,  whether  that  highway  be  land  or 
water. 

This  simple  and  clear  suggestion  has  been  perverted  into 
a proposal  that  speaking  for  the  railroads,  as  in  that  session  he 
was,  the  railroads  would  have  these  means  of  transportation  stifled, 
so  that  competition  might  be  killed  off  and  the  railroads  increase 
their  charges  and  their  traffic  at  the  expense  of  the  other  agencies 
of  transportation. 

But  Mr.  Kruttschnitt  said  nothing  of  the  sort  and  the  rail- 
roads propose  nothing  of  that  kind.  What  we  have  a right  to 
complain  about  is  the  lack  of  co-ordination,  as  between  these 
various  transportation  agencies,  in  the  regulation  of  them  by  the 
State  and  Federal  Governments.  We  do  not  urge  against  compe- 
tition. We  urge  in  favor  of  fair  competition  by  which  the  public 
interest  shall  be  recognized  as  not  confined  to  regulation  of 
the  railroads,  but  shall  include  equally  sane  and  impartial  regu- 
lation of  the  other  agencies  of  transportation  with  which  the 
railroads  have  to  compete. 

The  railroads  must  run  until  exhaustion.  If  they  run  with 
vigor  and  in  a wholesome  way  the  public  is  well  served;  as  they 
run  feebly  or  toward  starvation  the  public  is  badly  served.  It  is 
conceded  to  be  to  the  public  interest  to  see  to  it  that  if  possible 
the  railroads  function  effectively. 

Ships,  however,  can  tie  up  in  any  port  at  any  time,  as  may 
suit  them  best,  if  it  prove  undesirable  to  continue  in  the  traffic. 
Motor  buses  and  motor  trucks  can  lay  up  if  the  weather  or  the 
business  does  not  suit  them.  But  the  railroads  must  run.  Hence 
the  greater  unfairness  of  keeping  the  railroads  under  strict  regu- 
lation, while  their  competitors  are  left  free  from  such  regulation. 

Even  now  there  is  a strong  movement  on  foot  for  free  tolls 
through  the  Panama  Canal.  This  means  again  that  by  taxation 
of  the  railroads  and  of  the  general  public  those  who  use  the 
Canal  are  to  be  relieved  of  a charge,  which  no  one  holds  to  be 
unreasonable  in  itself.  Is  it  any  wonder  that  the  Middle  West 
States  ask  why  they  should  pay  taxes  in  order  that  the  users  of 


8 


the  Panama  Canai  may  not  have  to  pay  for  that  use,  or  in  order 
that  the  Canal  users  may  compete  more  effectively  with  the  users 
of  the  railroads.  They  see  that  railroad  rates  will  have  to  be 
raised  on  the  tonnage  they  ship  by  rail,  if  enough  of  the  rest  of 
the  tonnage  is  diverted  to  the  Canal. 

With  railroads  compelled  to  operate  on  a high  basis  of  cost, 
does  it  appear  unseemly  that  those  same  railroads  should  ask 
for  some  correlation  of  governmental  policies  as  between  the  rail- 
roads and  the  waterways  which  will  remove  injustice  and  make 
for  better  service  at  moderate  rates  by  all  the  transportation 
agencies,  whether  rail  or  water? 

Further,  I believe  you  will  concede  it  proper  that  the  rail- 
roads should  urge  that  as  in  the  nature  of  things  transportation  by 
water  is  cheaper  than  rail,  because  open  waterways  cost  nothing 
to  maintain,  the  railroads  should  be  permitted  to  meet  that  compe- 
tition free  from  rigid  interpretation,  provided  they  do  carry  the 
competitive  business  at  rates  not  below  the  reasonable  cost  of 
transporting  it,  and  on  a basis  that  does  not  discriminate  unfairly 
or  unreasonably  against  other  traffic,  but  which  does  recognize 
the  controlling  force  of  the  water  competition  on  the  rates  ob- 
tainable. 

This  will  cost  the  Interior  States  nothing  but  it  will  yield 
some  sustenance  to  the  carriers  and  gives  vitality  to  competition. 
Such  competition  is  bound  to  be  active  under  any  reasonable  and 
supervisory  jurisdiction  by  Government  over  all  the  rates,  whether 
by  rail  or  by  water,  or  by  routes  that  combine  rail  and  water. 
In  this  way  the  business  natural  to  each  route  will  find  its  channel, 
while  at  the  same  time  Government  regulation,  equally  admin- 
istered, with  due  relation  to  the  differences  in  the  modes  of  car- 
riage, should  prevent  abuses  and  promote  business. 

Transportation  is  so  large  a factor  in  your  business  that  it 
really  becomes  a factor  in  your  activities,  and  so  with  your  co- 
operation and  the  support  of  the  men  of  business  generally,  the 
constructive  policies  of  Government  will  be  continued  and  extend- 
ed so  as  to  give  us  fair  opportunity  in  meeting  the  conditions 
necessary  to  the  successful  conduct  of  the  transportation  business. 
Holding  down  the  arms  of  one  agency  while  leaving  other  and 
competitive  agencies  free,  or  yielding  to  some  of  these  agencies 
considerate  treatment  and  indulgent  policies,  while  other  agencies 
are  held  under  restrictive  regulation  combined  with  artificial 
restraint  upon  proper  economy  in  their  expenditures  is  hardly  fair 


9 


in  any  sense.  The  inequality  tends  to  be  disheartening.  It  makes 
more  difficult  a situation  which  might  be  relieved  by  granting  to 
the  regulated  carrier  a wider  field  for  initiative  in  the  improve- 
ment of  its  revenues  through  making  its  rates  more  flexible,  and 
by  reducing  its  expenses,  seeing  that  the  law  of  supply  and  de- 
mand applies  to  human  relationship  in  commercial  affairs  as 
well  as  to  articles  of  commerce. 

Finally,  I have  heard  murmurs  of  one  question  in  your  mind, 
namely,  will  railroad  rates  be  reduced? 

The  answer  is,  they  cannot  be  reduced  materially  until  the 
railroads  have  the  revenue  necessary  to  sustain  them  by  increased 
earnings  from  the  transportation  of  freight  and  passengers  and 
mail  and  express,  on  the  one  hand,  and  by  reduced  costs  of 
operation  on  the  other  hand. 

The  reductions  recently  promised  in  our  labor  costs  by  the 
United  States  Railroad  Labor  Board  amount  to  less  than  half  of 
the  very  last  advance  in  wages  given  in  1920  before  the  railroads 
were  turned  back  to  the  corporations,  as  already  referred  to,  and 
are  but  18  per  cent  of  the  total  advances  in  wages  through- 
out the  war  period. 

So  far,  the  railroads  have  not  been  able  to  arrange  by  nego- 
tiation with  their  men  for  any  reduction  in  wages.  Yet  the  rail- 
roads have  reduced  many  freight  rates.  The  unfortunate  feature 
of  it  is  that  every  reduction  in  freight  rates  is  attacked  from  the 
viewpoint  that  reduction  has  not  been  made  on  other  commodities 
in  which  other  interests  are  concerned,  each  reduction  serving 
only  to  whet  the  public  appetite  for  further  reductions,  and  so 
engender  more  criticism. 

Until  there  is  a realignment  of  costs  so  that  the  railroad 
income  will  be  sufficient  to  maintain  its  operations  and  to  provide 
for  the  demands  of  the  public,  little  reduction  in  rates  is  likely, 
and  Government  itself  could  not  give  such  reductions  under  exist- 
ing conditions  if  it  owned  the  railroads,  unless  by  taxing  the  people 
for  the  deficits. 

It  follows  that  we  hear  now  and  then  the  insinuating  call  for 
Government  ownership  as  the  solvent  of  the  present  troubles  of 
the  railroads,  but  let  me  tell  you  that  under  equal  conditions  of 
responsibility,  under  equal  conditions  of  accounting,  under  equal 
regulation  equally  administered,  private  operation  has  nothing  to 
fear  from  any  experiment  in  Government  operation.  The  experi- 


10 


ment  has  been  tried.  Should  it  be  tried  again,  it  will  meet  the 
same  fate  at  the  hands  of  the  public. 

All  this  means  that  railroad  men  are  alive  to  their  responsi- 
bilities, from  the  Directors  down  to  the  youngest  member  of  the 
official  staff  of  each  railroad,  and  with  your  constructive  help 
the  present  situation  will  be  righted  and  prosperity  for  all  will 
ensue. 

The  Transportation  Act  of  1920  was  the  first  constructive 
piece  of  legislation  enacted  by  Congress  to  give  a helping 
hand  to  the  railroads  in  the  public  interest.  It  guarantees 
the  railroads  nothing;  it  is  in  essence  a mere  expression  of  gov- 
ernmental good-will ; but  it  is  a fair  and  conscientious  start. 

The  work  has  not  stopped.  Senator  Cummins  and  the  Com- 
mittees, the  Interstate  Commerce  Commission,  the  Railroad  Labor 
Board,  the  President  and  his  Cabinet,  are  all  concerned  in  the 
subject,  and  I believe  the  business  men  of  the  Nation,  including 
the  transportation  men  as  an  important  part  of  that  business,  all 
have  steadfast  faith  that  out  of  the  counsels  in  Washington  will 
come  further  constructive  and  helpful  results. 

I take  the  liberty  of  suggesting  that  though  Congress  be 
deliberate,  it  is  better  even  for  the  railroads  that  the  deliberations 
be  broad  and  painstaking  rather  than  that  we  should  have  hasty 
and  ill-considered  action.  Deliberation  is  the  path  of  safety,  if 
only  we  endure  through  the  necessary  interval.  Let  us  all  hope 
that  the  interval  will  not  be  prolonged.  That  the  case  is  universally 
known  to  be  both  weighty  and  urgent  is  fair  reason  for  believing 
that  it  will  be  dealt  with  in  the  common  interest  as  quickly  as 
wise  counsels  warrant. 

In  the  meantime  let  me  ask  for  your  positive  and  constructive 
support,  for  as  men  of  business  you  know  that  if  this  Nation  is  to 
go  forward  the  railroads  cannot  go  backward,  but  must  make 
progress.  As  credit  men  accustomed  to  measure  earnings,  assets 
and  solvency  you  know  that  they  can  make  progress  only  on  a 
paying  basis. 


•11 


